Stocks moved mostly higher over the course of the trading day on Wednesday, as traders reacted positively to some much better than expected economic data as well as reports suggesting that several of the financial companies examined by the government don't need additional capital.

Some initial strength was generated by the release of a report from payroll giant Automatic Data Processing (ADP) showing a much smaller than expected decrease in private sector employment in the month of April.

The report showed that non-farm private employment fell by 491,000 jobs in April following a revised decrease of 708,000 jobs in March. Economists had expected a decrease of 645,000 jobs compared to the loss of 742,000 jobs originally reported for the previous month.

While the data points to continued weakness in the labor market, it presents another sign that the economy is stabilizing and generated some optimism about the Labor Department's monthly employment report due to be released on Friday.

In an interview with RTT News, Peter Cardillo, chief market economist at Avalon Partners, said that the ADP employment data signals that the Labor Department's monthly employment report will probably show a decrease of less than 500,000 jobs.

The markets also benefited from media reports saying that the government stress tests of the nation's leading financial firms have determined that JP Morgan (JPM), Goldman Sachs (GS), American Express (AXP), and Bank of New York Mellon (BK) will not need additional capital.

At the same time, reports have suggested that Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) will be asked to raise additional capital.

While the official results are not due to be released until after the close of trading on Thursday, the leaks generated some optimism about the outlook for the financial sector.

In other news, shares of Disney (DIS) saw considerable strength after the entertainment giant reported second quarter earnings that fell sharply year-over-year but reported adjusted earnings that came in above analyst estimates.

Disney reported adjusted second quarter earnings of $0.43 per share compared to analyst estimates of $0.40 per share. At the same time, the company said its revenue edged down 7 percent to $8.09 billion, slightly below analyst estimates of $8.15 billion.

While the Nasdaq underperformed the Dow and the S&P 500 by a wide margin, the major averages all closed firmly positive. The Dow closed up 101.63 points or 1.2 percent at 8,512.28, the Nasdaq closed up 4.98 points or 0.3 percent at 1,759.10 and the S&P 500 closed up 15.73 points or 1.7 percent at 919.53.

Sector News

Benefiting from the optimism about the results of the government's stress tests, banking stocks posted standout gains on the day. The S&P Banks Index ended the session up 12 percent, at its best closing level in almost four months.

Within the banking sector, Zions Bancorp (ZION), Marshall & Ilsley (MI), and KeyCorp (KEY) turned in some of the best performances.

Resource stocks also posted substantial gains, moving higher along with most of the major commodities prices. Significant strength was visible among energy stocks, as the price of oil ended the session up $2.50 at $56.34 a barrel.

Over the course of the trading day, significant strength also emerged in the real estate sector, with the Morgan Stanley REIT Index closing up 3.9 percent. With the gain, the index partly offset the 3.8 percent loss it posted on Tuesday.

While considerable strength was also visible among tobacco, transportation, and brokerage stocks, housing stocks posted notable losses on the day. The Philadelphia Housing Index fell 2.3 percent, with D.R. Horton (DHI) helping to lead the sector lower.

Some healthcare provider, retail, and biotechnology stocks also showed significant declines over the course of the trading day.

Dow Components

While a relatively slim majority of the Dow components ended the day in positive territory, strong gains by some of the blue chip stocks contributed to the triple-digit gain by the index.

Reflecting the strength in the banking sector, Bank of America (BAC) turned in one of the Dow's best performances, advancing 17.1 percent. With the gain, Bank of America ended the session at its best closing level in almost four months.

Shares of Citigroup (C) also showed a strong upward move amid some optimism about the results of the government's stress tests, with the financial services giant closing up 16.6 percent.

As mentioned above, Disney also turned in a particularly strong performance after reporting better than expected adjusted second quarter earnings. Shares of Disney closed up 11.8 percent, rising to a nearly six-month closing high.

JP Morgan (JPM), General Electric (GE), and Chevron (CVX) also posted notable gains, contributing to the higher close by the Dow.

On the other hand, shares of General Motors (GM) saw considerable weakness, with the auto giant closing down 10.3 percent. The loss by GM came ahead of the release of its first quarter results before the start of trading on Thursday.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly higher on Wednesday, although the Japanese market remained closed for the third straight day. Hong Kong's Hang Seng Index jumped 2.5 percent.

The European markets also moved higher over the course of the trading, benefiting from the U.S. employment data. The U.K.'s FTSE 100 Index rose 1.4 percent, while the French CAC 40 Index and the German DAX Index advanced 1.8 percent and 0.6 percent, respectively.

In the bond market, treasuries saw considerable volatility over the course of the trading day. The yield on the benchmark ten-year note bounced back and forth across the unchanged line before ending the day down less than a basis point at 3.152 percent.

Looking Ahead

While some traders are likely to stay on the sidelines Thursday ahead of the release of the results of the government's stress tests, trading could be impacted by the release of Labor Department reports on weekly jobless claims and first quarter labor productivity and costs.

Traders will also be digesting the release of quarterly results from Cisco (CSCO), News Corp. (NWS), and Prudential (PRU) after the close of trading today. Additionally, as mentioned above, GM is due to release its quarterly results before the start of trading on Thursday.

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